Icahn Leaps Into Trump Casino Battle

The Billionaire Investor Purchased a Majority of Beal Bank's First-Mortgage Liens on the Properties

By

Peter Grant

Updated Dec. 14, 2009 12:01 a.m. ET

The battle over
Donald Trump's
Atlantic City casinos intensified as billionaire investor
Carl Icahn
entered the fray by joining forces with Texas banker
Andrew Beal
against Mr. Trump and a group of note holders.

Mr. Icahn announced Friday that he had purchased a majority of Beal Bank's $486 million first-mortgage liens on casinos owned by Trump Entertainment Resorts Inc., which has been operating out of bankruptcy protection since February. Mr. Icahn said he will support a reorganization plan backed by Beal Bank, of Dallas, that would give the bank a majority stake and control of the company.

ENLARGE

Carl Icahn is facing off against a group that includes Donald Trump and a group of note holders.
Associated Press

Terms of the deal weren't released. But people familiar with the matter say Mr. Icahn is getting a 51% stake in the debt and is paying between 93 cents and close to 100 cents on the dollar. Also, the deal gives Mr. Icahn a "call," and Mr. Beal, a "put," which, under certain circumstances, would increase Mr. Icahn's position, people said.

Mr. Beal had been aligned with Mr. Trump in the fight until last month, when Mr. Trump switched sides and joined note holders who hold roughly $1.25 billion in unsecured debt. That side has criticized Beal's reorganization plan partly because he has no experience in operating casinos and it's unusual for a bank to own a casino.

Mr. Icahn in an interview said his involvement undercuts that argument. "This completely takes away that criticism," he said.

The well-known corporate raider has been playing in a number of bankruptcy deals recently with mixed results. In gambling, he led a group of lenders that brought Tropicana Entertainment out of Chapter 11, and is making a bid to buy Fontainebleau Las Vegas, a stalled hotel-casino project also under bankruptcy protection.

ENLARGE

Donald Trump.
Associated Press

Mr. Icahn had less success trying to derail a restructuring plan for CIT Group Inc., the embattled small-business lender. Mr. Icahn failed to persuade enough bondholders to block the plan and CIT went ahead with its prepackaged bankruptcy, from which it has since emerged.

This is the third time Mr. Trump's Atlantic City casinos have sought bankruptcy protection since he got involved in the business in the late 1980s. Before the most recent Chapter 11 filing, he was chairman and owned a 23% stake, but wasn't involved in daily operations.

No matter who wins the current fight, Mr. Trump's role will be even more reduced. Under the note holders' proposed reorganization plan, Mr. Trump would get a 5% to 10% stake in the company. Under the Beal plan, he wouldn't get anything. Beal contends that it would still have the right to use the Trump name on the casino for 10 years but his side disputes that.

"I haven't run the casinos for years and I'm no longer involved in this transaction," Mr. Trump said Friday. Earlier this month, he said he's eager to end the Chapter 11 process because his image is hurt when assets bearing his name are in bankruptcy.

The two sides have been trying to negotiate a settlement, but if that's unsuccessful, they will ask a bankruptcy judge early next year to choose between their rival reorganization plans. Mr. Beal's side believes he's in a better position because he controls the first lien on the properties. But people in the camp of Mr. Trump and the note holders say their plan has the upper hand because it would essentially give Beal Bank a full recovery, by paying down its mortgage by $125 million and giving Beal new debt for the remainder of what it is owed.

Mr. Beal said he reached out to Mr. Icahn "to capitalize on his extensive experience both in the gaming industry and in turning around troubled companies."

Kristopher Hansen,
a lawyer with Stroock & Stroock & Lavan representing the note holders, said in an email that Mr. Icahn's move "demonstrates clearly that Beal Bank's prior plan ... was nothing more than the negotiating ploy the note holders believed it was."

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